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American Equity Investment Life Holding Co (AEL) Q1 2021 Earnings Call Transcript

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AEL earnings call for the period ending March 31, 2021.

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American Equity Investment Life Holding Co (AEL 1.26%)
Q1 2021 Earnings Call
May 7, 2021, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to American Equity Investment Life Holding Companies First Quarter 2021 Conference Call.

At this time for opening remarks and introductions, I would like to turn the call over to Julie LaFollette, Director of Investor Relations.

Julie LaFollette -- Director of Investor Relations

Good morning and welcome to American Equity Investment Life Holding Companies conference call to discuss first quarter 2021 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com. Non-GAAP financial measures discussed on today's call and reconciliations of non-GAAP financial measures to the most comparable GAAP measures can be found in those documents or elsewhere on our Investor Relations portion of our website. Presenting on today's call are Anant Bhalla, Chief Executive Officer and Ted Johnson, Chief Financial Officer. Some of the comments made during this call may contain forward looking statements within the meaning of a Private Securities Litigation Reform Act indicated by terms such as estimate, expect, intend, over time, plan, potential, should, strategy, targeting, will, would, and working toward. There are number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied factors that could cause the actual results to differ materially are discussed in detail under risk factors in our filings with the SEC. An audio replay will be made available on our website shortly after today's call.

It is now my pleasure to introduce Anant Bhalla.

Anant Bhalla -- Chief Executive Officer and President

Thank you, Julie. Good morning. And thank you all for your interest in American Equity. Let me start with strategy execution. Today, we are delighted to report record progress in the execution in one of four strategy pillars. Specifically, this pertains to our go to market area, which focuses on how we raise funding through general account annuity products sold to close to 700,000 retail clients. The ATL 2.0 business model, what was flywheel of success starts with what has historically been an industry leading at scale, annuity funding origination platform. Over the past few years, this funding origination platform started to slow down in terms of growth in our core independent marketing organization channel. And we had limited success in penetrating the bank channel through our Eagle life subsidiary. One of the focus areas in my first year as CEO was to revive origination capability and refresh how we go to market. This is critical for AEL to have a strategy flywheel that can spin faster with superior execution for shareholder value realization enables a CEO to continue to be a growing franchise that originates long term, attractive funding for asset invest, investing. We feel good about some of the retooling we have done in the go to market part of our business since last summer, and continue to move forward to become a leading franchise in the general account annuity business in both IMO and bank broker dealer distribution. This strength in go to market plus, adding in access at scale to differentiated investment management capabilities over time, and the second strategy pillar of the flywheel should enable American Equity to be much more capital light going forward. This capital-light outcome is enabled by the third strategy pillar, which is effective utilization of reinsurance to blend using both our own shareholder capital today with third party capital through sidecar reinsurance Baker's to fund future growth of origination.

We are working in 2021 to execute our previously announced reinsurance partnerships with Brookfield and Varde-Agam. At this time, start to demonstrate the flywheel in motion. And we are in the process of building our own reinsurance platform in 2021. To further speed up the flywheel in future years, with AEL directly accessing third party capital, including potentially through sidecar like wakers. I expect to share more on the execution of a reinsurance and asset management efforts in the second and third quarter earnings calls. While my focus today will be on the go to market pillar. As I communicated on our last earnings conference call 2021 will be a transitionary year for aliens financial results. As we migrate toward this new AEL 2.0 business model, we are migrating a fairly large 50 plus billion dollar balance sheet from a legacy core fixed income strategy with relatively higher asset leverage to a new asset allocation approach encompassing lower asset leverage capital structure optimization through reinsurance and third party capital and utilization of alpha alpha assets to both improve sustainability of investment results in a low interest rate environment and deliver superior loss adjusted net yield over time. The scaling of alpha acids is expected to be a multi year journey with a couple of billion dollars of alpha acid added to our books each year. Like any strategy migration, there are short term impacts for greater long term gain for a year, this will manifest itself in running higher cash balances somewhat accentuated by near perfect timing of de risking existing assets in the fourth quarter of 2020. As we pursue the closing of the Brookfield and Varde-Agam, the insurance transactions, we expect 2021 financial results to bear a significant amount of the transitionary effects of our fundamental strategy shift for long term unlock for both our shareholders and policyholders. This value unlock is what we have vigilantly focused on.

Therefore, we expect 2022 to be the first full year for investors to start to see the incremental financial benefits from a new business model in a few minutes, that will provide more details on our financial results, and how this migration affected operating results. Getting to execution in our go to market pillar. In the first quarter, we recorded all time record sales of $2.4 billion, up 32% from the fourth quarter of 2020 and 245% year-over-year. First quarter sales topped the previous quarterly record of $2.1 billion set in the fourth quarter of 2015, which we believe is an early indication of the potential from as go to market franchise. We are targeting between five to $6 billion of sales for the total company this year. And we are well on our way. Although a majority of first quarter sales, whether we're in our multi year, fixed annuity products, we expect to focus our efforts for the rest of the year on the fixed indexed annuity product line, especially given our recent product refreshes in that area. at American Equity live quarterly sales of $1.3 billion with the highest level since the fourth quarter of 2015. sales increased 46% sequentially, and 122% compared to the first quarter of 2020. In February, we re introduced a refreshed acid shoe product that is quickly gained momentum, leading to a sequential 13% increase in accumulation deposits after just the first month of sales. The refresh acid shield features two new proprietary indices, the Credit Suisse tech edge index, and the society general sentiment index. We also added the existing Bank of America destinations index to the refresh product. We are now offering these strategies for both one and two year terms. We also added enhanced rate riders to asset shield, allowing policyholders to earn a greater cap or participation rate for an optional fee.

We have seen a strong initial reaction to the product refresh ad sales of acid shield more than doubled in March compared to February. In particular, the new indices have been well received as 50% of March deposits went into the new strategies added to acid shield in February. Why one month is not a trend. The outlook for fixed indexed annuity sales at American Equity life is much stronger than even the pre pandemic levels in early 2021. In essence, momentum is on our side. Total fear that evil lies of $1.1 billion represented a 19% increase versus the fourth quarter of 2020 and a 10 fold increase compared to the year ago quarter. Fixed indexed annuity sales were up 40% both sequentially. And compared to a year ago. Our overall product strategy resulted in positive benefits for both f5 sales and recruiting. Over the last six months, 1400 representatives wrote their first piece of business with Eagle life, increasing the number of current active bank and broker dealer advisors that have sold Eagle light products by 36%. FIA sales at Eagle light trended higher throughout the first quarter, with solid growth in both February and March. On April 7, we introduced a new Eagle select income focused product, which will better address the growing demand for guaranteed lifetime income product in the bank and broker dealer space. Eagle life has recently been approved by PNC Bank on a combined entity basis. We have been at BBVA prior to its merger with PNC as indicated on our fourth quarter 2020 earnings call.

Our plan has been to reengage with distribution with a simpler multi of fixed rate annuity products during COVID-19. And now pivot to driving growth through a revamped fixed indexed annuity product portfolio. We plan to continue to introduce innovative new products as we move through the a 2.0 transformation, which will help us compete effectively and grow our share of the annuity market. As a financial planning needs of Americans evolve. American Equity is focused on providing our clients with dignity of a paycheck for life. I believe our commitment to this core mission statement will become recognized and appreciate in the market over time. This will help grow AEL in both channels and open up other market access opportunities for us in the future. Not ending the financial results. For the first quarter of 2021. We reported non-GAAP operating income of $41 million, or $0.43 per diluted common share. As expected. The first quarter results reflected many of the transitional effects I mentioned earlier, in particular the effect of cash in the portfolio in excess of the target range and the level of operating expenses.

Now I'll turn the call over to Ted to give more detailed analysis on a first quarter financial results.

Ted M. Johnson -- Chief Financial Officer and Treasurer

Thank you, Anant. And good morning, everyone. prior to going over the results for the first quarter, I want to provide more context for a reclassification between certain balance sheet items as of December 31 2020, due to an immaterial air identified in our quarterly closed process. The net effect of which is a change in accumulated other comprehensive income. There is no impact on gap equity, x A OCI, net income or operating income. Specifically, we should have been including the impact of unrealized gains and losses in the calculation for the lifetime income benefit reserved, similar to the calculation of deferred acquisition costs and deferred sales and Doosan. We corrected this as of December 31 2020. In the first quarter. The correction of the immaterial air was done through a reclassification between associated balance sheet line items for the period ended December 31 2020, which can be found in our first quarter financial settlement. And as I stated before, that had no impact to reported net income or non-GAAP operating income. As we reported yesterday afternoon, operating income for the first quarter of 2021 was 41 million, or $0.43 per share, compared to 154 million, or $1.67 per share for the first quarter of 2020. Notable items in the first quarter of last year included a 31 million or $0.33 per share tax benefit from the enactment of the CARES Act. Notable items reflect the positive or negative after tax impact to non GAAP operating income available to common shareholders for certain items, such as those do not always reflect the company's expected ongoing operations. We present notable items to help investors better understand our results and to evaluate and forecast those results. Averages yield on invested assets was 3.58% in the first quarter of 2021, compared to 3.8% in the fourth quarter of last year.

The decrease was primarily attributable to a 34 basis point reduction from interest forgone due to an increase in the amount of cash held in the quarter as we prepare to execute the Brookfield and Varde-Agam Reinsurance deals and which we will primarily transfer cash. Cash and short term investments in the investment portfolio averaged 8.6 billion over the first quarter, up from 4.4 billion in the fourth quarter of last year. Compared to the prior quarter, partnership income contributed an additional six basis points to yield. At March 31, we held 10 billion of cash, yielding roughly two basis points. The current point in time yield on the portfolio, including excess cash is approximately 3.3%. So the pressure on investments spread will continue into the second quarter. Excluding cash and invested assets to be transferred as part of the reinsurance transactions and the redeployment of remaining cash in excess of target. We estimate that the current point in time yield on the investment portfolio to be roughly 4%. The aggregate cost of money for annuity liabilities was 158 basis points, down five basis points from the fourth quarter of 2020. The cost of money in the first quarter benefited from two basis points of hedging gains compared to a one basis point gain in the fourth quarter. Excluding hedging gains, the decline in the adjusted cost of money reflects a year-over-year decrease in option costs due to past renewal rate actions. Reflecting the decline in the portfolio yield investment spread fell to 200 basis points from 225 basis points in the fourth quarter of last year, excluding non tradable items adjusted spread in the first quarter with 187 basis points, compared to 213 basis points in the fourth quarter of 2020. In line with yield, we would anticipate our investments spread to rise back to expected levels once the reinsurance transactions are completed.

The average yield on long term investments acquired in the quarter was 4.04%. Growth of fees compared to 4.46% growth of fees in the fourth quarter of last year. We purchased 625 million of fixed income securities at a rate of 3.92% and originated 77 million of commercial mortgage loans at a rate of 3.49% and purchased 151 million of residential mortgage loans at 5.76%. Growth the fees the cost of options increased to 145 basis points from 139 basis points in the fourth quarter of 2020. Primarily reflecting mix shift within our S&P 500 strategies toward higher cost participation rate strategies from cap strategies and a slight increase in the cost of clicking options. hedging our monthly Point to Point strategies due to the decrease in volatility over the quarter. All else key quote, we expect to see the cost of money continue to decline over the next two quarters before stabilizing in the fourth quarter. Should the yield available to us decrease or the cost of money rise, we have flexibility to reduce our rates if necessary, and could decrease our cost of money by roughly 57 basis points if we reduce current rates to guaranteed minimum. This is down from 62 basis points, we decided on our fourth quarter call. The liability for lifetime income benefit writers increased 73 million this quarter, which included a negative experience of 11 million relative to our model expectations. There were pluses and minuses in the minuses in the first quarter, with the biggest differences due to higher than model lifetime income benefit rider utilization, and lower than expected decrement on policies with lifetime income benefit riders. Deferred acquisition costs and deferred sales inducements amortization totaled 132 million, 5 million more than modeled expectations.

The biggest items driving the negative experience were higher than expected decrement on the total book of business, and the higher than expected lifetime income benefit writer utilization of which I just spoke partially offset by lower than expected adjusted gross profit. Other operating costs and expenses increased to 56 million from 55 million in the fourth quarter. We expect operating costs to trend higher over the coming quarters, as we will build out the necessary infrastructure to continue execution of the ATL 2.0 strategy, but still expect the level of other operating costs and expenses to fall into the high 40 million range post refinancing our existing ag 33 redundant reserve financing facilities in 2021. As expected, we completed the execution of our initial accelerated share repurchase program in March and received another 542,000 shares in addition to the initial 3.5 million shares delivered at the initiation. We also repurchased approximately 155,000 shares in the open market since the closing of the accelerated share repurchase today. Combined with the 1.9 million shares we repurchased in the open market prior to the initiation of the AFR program. We effectively reduced the share dilution resulting from the November 30 initial equity investment of 9.1 million shares from Brookfield asset management by approximately two thirds. All of that to total capitalization, excluding accumulated other comprehensive income at quarter end was 11.6% compared to 12.2% at year end, and 14.9% and last year's comparable quarter invested assets at amortized cost was 12.6 times shareholders equity excluding accumulated other comprehensive income. At March 31, cash and short term investments at the holding company folder approximately $490 million. We expect to have roughly 350 million of cash in excess of target at the holding company, even after buying back the additional shares necessary to fully offset Brookfield tranche one issuance related dilution.

Now, I'll turn the call over to the operator to begin the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first responses from Wilma Burdis from Credit Suisse. Please go ahead.

Wilma Burdis -- Credit Suisse -- Analyst

Hi, good morning. I guess one question just is AEL still on track to repurchase the 250 million to 300 million stock. Looks like there was, you know, kind of 20 million in buybacks in one queue and still almost 3 million of Brookfield dilution to offset just wondering what the outlook is for that?

Ted M. Johnson -- Chief Financial Officer and Treasurer

Hi, Wilma, its Ted. In regards to that, I know we are going to continue to look at, you know, aggressively repurchase repurchasing the remaining shares to offset the dilution from Brookfield and look toward doing that, and whether or not we get the 250 returned. In addition to that, it's also somewhat predicated on the timing of the approval by the Iowa regulator and the New York regulator on the form a, because then Brookfield will then execute their right to buy additional shares under what we refer to as equity, tranche two. And at that point in time, we would then be able to buy those shares back and also return the 250. We could get time constraint as we go through the year, depending on the timing of the approval by the Iowa insurance department.

Anant Bhalla -- Chief Executive Officer and President

Wilma, I -- one thing that Ted covered it. But if your question gets too intense, yes, we intend to return to our $15 million of capital, As previously stated this year to shareholders, it's a function of getting the timing right, given crunched to it as Ted mentioned.

Wilma Burdis -- Credit Suisse -- Analyst

Okay, got it. Thanks. And then second question. I guess the new money yield of about 4% in the quarter? Seems like that's come down to about 3.4%. And then you guys talked about the residential loans. But how did you guys hit that with given the you know, most yields are kind of sub 3% right now?

Jim Hamalainen -- Chief Investment Officer of Insurance

So, I'm Jim Jim Hamalainen, our Chief Investment Officer, insurance entities think that one? Sure, thanks this gem, you know, it's a function of really a mix of assets. So mix of, you know, core assets, which are lower yielding as you as you, as you indicated, plus some of the private equity strategies that we're employing that do have higher yields. And so it's really an asset mix, and asset mix, answer to that question.

Wilma Burdis -- Credit Suisse -- Analyst

Okay, got it. And then just maybe a little bit of color on the liver utilization. I guess, because you made me talk specifically about the underlying trend there in the quarter and where that's going?

Anant Bhalla -- Chief Executive Officer and President

Sure, I can do that one. So we did see higher than modeled liver utilization this quarter. As we look at that it did start to trail off in the quarter and come down. So we'll be watching that closely to see what kind of pattern emerges as we go through the remaining quarters. As we look back and look at last year, we also thought elevated utilization of liver in the first quarter, and then it trails down and the remaining quarters. They've more matched what we have either modeled or went below. So we'll continue to monitor that Wilma and look at that and see if there's any adjustments we need to make for that kind of pattern in our models when we look at our annual assumption revision update.

Wilma Burdis -- Credit Suisse -- Analyst

Okay, got it. Thank you guys very much.

Operator

[Operator Instructions] Your next response is from Greg Peters with Raymond James. Please go ahead.

Greg Peters -- Raymond James -- Analyst

Good morning, I'm going to stick on the spread results table in your supplement. And I noted Ted, your comments about the average yield being depressed by about 34 basis points because of the cash being held for the transactions. And then you also said you expect the investment spread to turn back to expect level. So if I were to fast forward this table to say q4 21, how do you think the average yield on invested assets but more How do you think aggregate cost of money will work? And how do you think aggregate investment spread will work?

Anant Bhalla -- Chief Executive Officer and President

Okay, I'll answer it this way. Greg. One, if you look at our portfolio currently, and excuse exclude the securities and cash we expect to transfer as part of the execution of the reinsurance agreements, and the redeployment of the other pass above that and at a conservative rate at approximately three and a half. I mean, we would hope to beat that. That gets you to residual yield on the portfolio of 4% where we sit at today cost them money wise, you know, we could potentially if all else equal sees some additional benefit to cost the money over the next few quarters. And then as I said, See it's stabilized in the fourth quarter.

Greg Peters -- Raymond James -- Analyst

But you said the investments, you expect that to turn to expected levels, what are expected levels? Because, you know, it's obviously come down a lot from a year ago?

Anant Bhalla -- Chief Executive Officer and President

So I would say there is that we would go back to what our assumptions are in our model, which is a 240 spread, which we have disclosed before.

Greg Peters -- Raymond James -- Analyst

Yes. All right. Perfect. I was that my two questions, or was that a follow up to my first question? Do I get a second question?

Anant Bhalla -- Chief Executive Officer and President

I'll let you have one more Greg. Go ahead. You've got one more.

Greg Peters -- Raymond James -- Analyst

All right, I just I don't want to violate any rules. And Stevens, you know, I'll get yelled at by Stephen later. I wanted to pivot to the just the sales outlook, I think you said not five to 6 billion of sales expected for this year, given the strong results of the first quarter. That suggests that the remaining couple quarters, you know, will be lower sequentially than the first quarter. And also might suggest that the fourth quarter could be down on a year-over-year basis. And so I understand there's a lot of moving pieces to what's going on between product mix, etc. But maybe you could give us some additional color.

Ted M. Johnson -- Chief Financial Officer and Treasurer

Happy to and good morning. The things that play over there. One is business mix, as you alluded to, we have been able to invigorate Eagle life to a point that we have now a twin engine approach to go to market. And in both Eagle life and American Equity, the focus is on FBI sales. And that's what's going to be driving the rest of the year. Fixed Rate annuities have pretty much come to a fairly slow down pace. We're doing around three and a half million a day to under 100 million a month now. In so that's sort of the way we got to think about it. We're focusing on ephi. And the internal sales people are basically compensated on more an FIA mix than mine. So strategy is there, the product professional there, the compensation alignment is there to get that result, which you're spot on, right. We would expect sequential in your in your declared urine, your outcomes, like you mentioned.

Greg Peters -- Raymond James -- Analyst

Got it. Thank you for the answers.

Operator

Thank you. Your next response is from Erik Bass with Autonomous Research. Please go ahead.

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. So, hoping aping for a little bit more color in terms of your expectations around the timing of getting some of the excess cash balances invested. And also just if you could clarify of the 10 billion that you had at the end of March, how much of that will be transferring to the reinsurers? And how much of that is excess cash that is staying with you in theory invested.

Jim Hamalainen -- Chief Investment Officer of Insurance

Hi, it's Jim Hamalainen and thanks for the question. You know, a number of parts there, that that the timing is dependent on which includes closer to the reinsurance deal deals, also includes some of the partner investment partnerships that we have previously announced and that we're working on. So timing is hard to predict exactly. But our expectations are at about $5 billion of that cash will be used to fund the reinsurance transactions. Beyond that, you know, our expectations are that we will use maybe one or $2 billion in private asset strategies this year, focused on some areas of market that we really like, including residential real estate primarily in the form of single family housing rentals. We also like select sectors and the commercial mortgage loan market. We like agricultural loans. And lastly, we're starting to move into the ramp up of our exposure to metal market credit through our partnership that we previously announced with Adam Street. So those are some of the primary those are the primary areas that we'll be utilizing our the cash that we have on the balance sheet today.

Erik Bass -- Autonomous Research -- Analyst

Got it. So if you're doing sort of one to 2 billion of kind of the five that yours in private assets, strategies, does that mean that the remainder is going into sort of more plain vanilla corporates? And then just related to that Anant had mentioned wanting to allocate a couple billion dollars a year to higher output strategy. So will that be raised from sort of shifting existing assets or is that more putting to work new cash in the door from sales?

Jim Hamalainen -- Chief Investment Officer of Insurance

Sure, this year we have captured We have a cash to deploy for those strategies as we start to ramp those up. And as you mentioned, there is some there is more cash there, you know, some core core plus strategies that we have employed in the past, we'll certainly look to select parts of the market. For some of those investments also.

Erik Bass -- Autonomous Research -- Analyst

Got it. Also the intent is to invest the full 5 billion by year end.

Jim Hamalainen -- Chief Investment Officer of Insurance

Eric, I would add that, you know, we do have a target of holding cash somewhere between one to 2%. So you need to take that into consideration. No one to 2% of our investment portfolio we would hold in cash.

Anant Bhalla -- Chief Executive Officer and President

Exactly. I read what, what can Jim just said write your questions at 10,000,000,005 goes to reinsurance transactions, we hold around a billion in cash because holding 2% in cash, as Jim outlined, and then specifically this add a little color to Jim's point, we get a billion to 2 billion done in private alpha assets this year, that would be success. North of a billion is what we're targeting in future years. Yes, new business flow is going to largely go to private assets. So we ramped that a couple of billion years.

Erik Bass -- Autonomous Research -- Analyst

That's, that's fair. Got it. Thank you.

Operator

Thank you. Your next response is from John Barnidge of Piper Sandler. Please go ahead.

John Barnidge -- Piper Sandler -- Analyst

Thank you. I'm sticking with the sales question, clearly drove record sales in the quarter over 70% of the composition is definitely going to shift to fit. But as we go forward in the year, how should we expect, you know, must not go forward necessarily just this year, but my views have never been a huge composition of sales for AEL but where do you think it season's out in this AEL 2.0. thought process?

Anant Bhalla -- Chief Executive Officer and President

Hi John. Good to hear your voice. Great question. Michael will be relevant to us in the past we originated migraine reinsured off to other parties or as a capital play in some regards to not have to consume capital for it. If you've got a strong middle market credit, and non qm mortgage business, you really dogma three to five year assets that fit very nicely with the mic. So we'll be opportunistic on maiga. We, it's opportunistic to both build your go to market franchise, which is what we did the we refresh the FIA platform, we are an FIA shop, we actually really do believe in the dignity of a paycheck for life. And the FIA platform allows a lot of that. And we'll opportunistically that market, Mike up and down, but really around having the assets now to support minor.

John Barnidge -- Piper Sandler -- Analyst

Okay, that's helpful. And then my other question, you talked about 2021, being that transit, the burden of the value unlock, I think was the phrase, does this mean like side cars is going to be more of a 22 events and I will regulatory approval keeps getting pushed out.

Anant Bhalla -- Chief Executive Officer and President

Yeah, safeguards was always planned to be through permanent re the concept that we introduced, so we build really our own platform, demonstrated in action, and then permanent re ends up being, frankly, a 2023 financial results, in fact, executed in 2022. You see with our Brookfield transaction, a real demonstration of what that looks like, in and that happens this year. In terms of the Iowa regulatory approval, you know, as well as others, these things take their natural course of time, we don't think it's pushed out, we just can only move at the pace that everyone else can move. So our focus is summarize get Brookfield done, by the way that is actually progressing very well. And we expect to talk to you about in the next earnings call about it, that we just told you to the point to what we said in back in late fall, we're expecting actually that to come out better than that, in terms of financial impacts going forward. So I'm feeling very good about where that ends up happening. The other reinsurance efforts will continue effort and work through until their own platform, we also are bringing in the damage necessary to do this. So this is the big idea, the reset your financials, and then the fourth quarter of this year, you should really start to see what is the run rate going into 2022.

John Barnidge -- Piper Sandler -- Analyst

Thank you very much that answers.

Operator

Thank you. Your next response is from Ryan Krueger of KBW. Please go ahead.

Ryan Krueger -- KBW -- Analyst

Hi, good morning. First question is on cash flow generation. I know you've got it to 250 plus of annual capital return. Can you help us think about what extent is that consistent with the amount of annual cash flow, you expect the company to generate going forward versus, I guess some utilization of freed up capital related to the enforce reinsurance deals you did?

Anant Bhalla -- Chief Executive Officer and President

Ryan, I'll start here. I think first of all, in these early years when we're doing the 250 million of return of capital to shareholders, certainly some of that is going to be coming from the reinsurance deals that we're executing, and where it over time as we continue to execute ATL 2.0, and to what exactly or not was saying, as we move into permanent Bre, vycor sidecar reinsurance vehicles, and the mix of our revenues is generated, a bigger mix of that is generated from fee revenues that we generate off of managing the liabilities and managing the investments. That's where, you know, that 250 ultimately will be coming from as we continue to execute a dl 2.0. It's all about the capital efficient and the capital lightmap model to be able to to return that, you know, annual target of that 250.

Ryan Krueger -- KBW -- Analyst

Thanks. I guess related to that, on here, we just in terms of like the potential timing constraint on buybacks this year, should we just think about that, as you're unable to complete? All of the buybacks in this calendar year that you had previously guided to? You would ultimately make up for it next year? It just might be a timing issue.

Anant Bhalla -- Chief Executive Officer and President

Exactly. It's just a timing issue. And again, we will look at all you know, the available alternatives and things and what we can do to be able to fully offset, you know, the shares that will ultimately be issued to Brookfield of the ones that are outstanding, and then also see on the timing of returning the 250. But yeah, it doesn't that we skip a year. It's just the timing of exactly when that gets done.

Ryan Krueger -- KBW -- Analyst

Thank you.

Operator

Thank you. [Operator Instructions] Your next response is from Bob Huang with Morgan Stanley. Please go ahead.

Bob Huang -- Morgan Stanley -- Analyst

Actually, my question has been answered. Thank you very much, though.

Operator

Thank you. Your next response is from Pablo Singzon with JPMorgan. Please go ahead.

Pablo Singzon -- JPMorgan -- Analyst

Hi, can you hear me?

Anant Bhalla -- Chief Executive Officer and President

Yes, we can Pablo.

Pablo Singzon -- JPMorgan -- Analyst

Perfect. So I just wanted to pop in Ryan's question about free cash flow generation that we serve, normalize for the benefits of all these reinsurance deals you have in the pipeline. So you know, I guess our approach to the question this way, so most insurers have anywhere from a 60 to 80% free cash flow conversion ratio. I guess if you look, you know, maybe three, four years out, where do you AEL sorts of falls in that range?

Anant Bhalla -- Chief Executive Officer and President

Pablo, its little to difficult to look three to five years down, but they hide it here a voice. Good morning. I think the way to think about we look to transform from being just an insurer to being a broader firm that's got an RFP spread business, and then ROE a fee business, the fee business. So you could see us two years from now, since you asked me to look forward, we segment our bounce rate segment our financials along that fee business and the spread business, and the business is 100%. free cash flow.

Pablo Singzon -- JPMorgan -- Analyst

Yep, understood. And I guess the reason I started off with it ranges is because I think with all the deals you have, you're probably covered for the next three years anyway. But appreciate the response. And then the next question I had was what companies are starting to talk about releasing capital that I guess was previously budgeted as a buffer for credit downgrades or losses? You know, this is something similar, or you know, maybe you're thinking along the same lines, or would you rather redeem capital for potential see when changes or perhaps a ramp up in alpha assets as you're executing on?

Anant Bhalla -- Chief Executive Officer and President

Yeah, so we will consume capital for ramping up into alpha actors. We feel very good about the de risking efforts we did in the fourth quarter. Game drafting team did a great job there. Our C1 consumption will increase but with the creation of our reinsurance platform, we're going to be managing to our rating agency capital requirements and we have strong excess capital positions going forward. So if some of the reinsurance capital we free up will be used to fund greater c one for ramping up Have you confident about the 250 this year and 250 to 300 in future years.

Pablo Singzon -- JPMorgan -- Analyst

Okay, thank you for your answers.

Operator

Thank you. We have a response from the line of Ryan Krueger of KBW Please go ahead.

Ryan Krueger -- KBW -- Analyst

Hey, I just that one more. If we go back to the 11 to 14%, are we guidance? would you expect to get into that range? At least the low end in 2022?

Anant Bhalla -- Chief Executive Officer and President

Right, I think we're going to be focusing on our ways and outcome, we're going to be focused on capital return, cash return on a sustained basis. And you're probably going to see the earnings pick up on an ETF basis first, too. So we're focused on ETF growth in the next year, you've seen a run rate at the end of the fourth quarter of this year, which is a strong double digit TPS growth for next year. And capital return ROE to follow.

Ryan Krueger -- KBW -- Analyst

Got it. Thank you.

Operator

Okay, we do have a response from Pablo Singzon of JPMorgan.

Pablo Singzon -- JPMorgan -- Analyst

I had a question about the outage generating app. I think I just want to confirm with you, we allocate to these assets, so we shouldn't assume g turbo ramp or, you know, to get to the runway deals, right? Because it's not, it's not an investment or similar vehicle. It's essentially fixed income. So as soon as you invest in it, you know, the higher you'll begin to attach, is that correct?

Jim Hamalainen -- Chief Investment Officer of Insurance

Pablo, hi, its Jim Hamilton and the depend on the asset class, or there can be a ramp up period, some in some asset classes. That's true in some other asset classes. Clearly, the ramp is very quick, and you can do right away.

Anant Bhalla -- Chief Executive Officer and President

And a good example to add to that spot on is like look at credit, probably will add a 1 billion, 1.5 billion lines of credit. We're ready to go tomorrow. But it takes around a year to get them to ramp a 1 billion, 1.5 million market credit. It takes a year.

Pablo Singzon -- JPMorgan -- Analyst

Right, right. My question was more about the yield attaching to your actual investment. I understand you won't be able to allocate 100% from day one, right. But whatever you're able to allocate that will start earning the higher yield right away, correct?

Anant Bhalla -- Chief Executive Officer and President

Correct.

Pablo Singzon -- JPMorgan -- Analyst

Okay. That was it.

Anant Bhalla -- Chief Executive Officer and President

I get your question. It's not like a committed but not drawn down facility that happens in order to it's not like that direct.

Pablo Singzon -- JPMorgan -- Analyst

Exactly, exactly. Okay, thank you.

Operator

I am showing no further questions at this time. I would now like to turn the conference back to Julie for final remarks.

Julie LaFollette -- Director of Investor Relations

Thank you for your interest in American Equity and participating in today's call. Should you have any follow up questions, please feel free to contact us.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Julie LaFollette -- Director of Investor Relations

Anant Bhalla -- Chief Executive Officer and President

Ted M. Johnson -- Chief Financial Officer and Treasurer

Jim Hamalainen -- Chief Investment Officer of Insurance

Wilma Burdis -- Credit Suisse -- Analyst

Greg Peters -- Raymond James -- Analyst

Erik Bass -- Autonomous Research -- Analyst

John Barnidge -- Piper Sandler -- Analyst

Ryan Krueger -- KBW -- Analyst

Bob Huang -- Morgan Stanley -- Analyst

Pablo Singzon -- JPMorgan -- Analyst

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AEL
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